Updated 4:47 pm, Thursday, December 5, 2013

Lower Fairfield County is showing its resiliency as a mecca for the financial services industry.

But a stalwart in the region's office brokerage market is recommending building owners diversify their tenant portfolios as vacancy rates remain stagnant at more than 20 percent in most areas.

Financial services remains the region's largest lessor of office space, but other commercial enterprises are gradually becoming important players in the leasing market, according to data supplied by the Stamford office of Jones Lang LaSalle.

"Financial services and professional and business services businesses without doubt have a large presence in the Fairfield County office market, but leasing activity in 2013 suggests that these industry sectors are not leasing large spaces compared to some other local players and emerging industries," said Erin Patterson, research manager at Jones Lang LaSalle. "It makes sense to diversify the business base. It's a hard egg to crack. We need to diversify, but how do we do that?"

The state's First Five and subsequent incentive programs have helped attract several non-financial services companies to the Stamford -- like Charter Communications and NBC Sports, Patterson said, but there is no easy answer to the challenge.

Amount of space vs. number of deals

Engineering, construction, media and advertising and manufacturing/distribution firms averaged more than 15,000 square feet per lease this year in southwest Connecticut, she said.

While other businesses are increasing their presence, financial services is outpacing them in terms of the number of leases signed, she said, but most of those financial services leases involve smaller operations.

"Financial services now in Fairfield County is more satellite offices and back office," Patterson said. "If it's a headquarters, they're more likely to put it in Manhattan."

But as financial services appears to be rebounding in the region, the sector has found ways to control its need for large patches of added space, according to Steve Blank, senior fellow at the Washington, D.C.-based Urban Land Institute.

"Everybody is using space more efficiently. Two hundred square feet per employee is not happening anymore, and file cabinets are up in the cloud now," he said, adding employees are often work from their homes.

To attract more financial services firms, communities in this area must be able to compete for the young talent who live in New York City, according to Patterson.

"Stamford has done a good job to close that gap by developing a 24/7 environment in the South End," she said.

Some growth in sector

Stamford has experienced a slight uptick in the number of financial services and insurance jobs, according to data supplied by the Fairfield County Information Exchange, a unit of the Business Council of Fairfield County, which noted there were 11,026 jobs in the sector in 2012, compared with 10,710 jobs in the sector in 2000.

Jobs in financial services accounted for 15 percent of all Stamford positions last year, compared with 8,335 jobs in professional and business services, or 11 percent; 7,660 jobs in health care or 10 percent; 6,674 jobs in retail or 9 percent; 5,266 in accommodations and food services, or 7 percent; and 3,212 in manufacturing or 4.3 percent.

Since 2000, Stamford has lost 9,086 jobs, according to the information exchange's data.

"Fifteen percent is a big number," said Joseph McGee, vice president of the Business Council, referring to finance-related jobs in Stamford. "It's come back to where we were in 2000, and financial services drives professional services."

But despite the high salaries paid by the sector, McGee emphasized that building owners should attempt to diversify their portfolios.

"We've been saying that for years. Stamford has to diversify its tenant base," he said.

Greenwich's dependence on finance jobs

Greenwich, which depends heavily on the financial services industry for employment, lost 1,602 jobs over the last 12 years, to 34,802 in 2012, the information exchange reported.

But the town showed its prominence as a business center as finance and insurance positions totaled 22 percent of jobs or 7,679 jobs in Greenwich in 2012, compared with 14 percent or 5,072 jobs in 2000.

Financial services firms are the prime tenants at 55 Railroad Ave., and Pickwick Plaza in Greenwich, buildings owned by New York City-based Kensico Properties.

"The central business district in Greenwich's larger buildings are almost all financial services," said Alan Zimmerman, Kensico executive vice president, adding that the Railroad Avenue property is about 95 percent occupied and Pickwick is at about 70 percent. "We have retail at Pickwick, but they are related to financial services. I don't think it's a matter of attracting other types of tenants. I can't sell my Rolls Royce at a Toyota price. I can't do it."

The lease rate at Pickwick is $85 per square foot, and at 55 Railroad Ave., it's $100.

The arrival of non-financial sector businesses in Stamford is a continuation of a cyclical process that dates to the 1970s when companies like GTE, Champion and International Paper moved from New York City to the city, said Laure Aubuchon, Stamford's director of economic development.

New money

Media businesses like NBC Sports, NBC Universal, Yankees Entertainment & Sports and the Connecticut Film Center are giving Stamford's commercial building owners another option, according to Aubuchon, estimating Stamford has 4 million square feet of vacant office space.

"I think you'll see businesses sprouting up to support NBC Sports and the others," said Aubuchon, who sees digital marketing companies occupying some of the vacant office space in the city.

More office space will be coming onto the Stamford market when Pitney Bowes moves out of its 442,455-square-foot headquarters on Elmcroft Road in early 2014, she said.

But Stamford provides a solid option for the non-financial services sector, according to Aubuchon.

"The value proposition still remains. We're the only big city in Connecticut that a company in New York City would consider moving to," she said. "Manhattan real estate is hot. There's a price differential, and the tax situation is marginally in our favor. I'm optimistic, but 4 million square feet is a lot of companies."

Finance and insurance jobs total 9 percent of all jobs in southwest Connecticut -- 36,108 jobs, up only slightly from 35,269 jobs in 2000, according to the information exchange. Health care is the top employer at 14.5 percent or 59,096 positions in the region.

Danbury gains traction

While Stamford and Greenwich are home to a majority of Fairfield County financial services businesses, the Matrix Corporate Center in Danbury is starting to attract some interest.

This year, Aaron Smiles, Matrix director of operations, welcomed NewOak Credit Services, a new unit of NewOak Capital, a New York City-based financial services firm.

"They're now operating with 3,000 square feet," Smiles said. "We'll build them out to 10,000 to 12,000 square feet in 2014, and we expect them to expand to 20,000 square feet in 24 months. They're hiring like crazy."

While Smiles emphasized the need for an office complex to have a diversified business roster, he said the Matrix will be happy to welcome more financial operations taking advantage of rental rates of about $24 per square foot plus electricity -- lower than sought-after properties in lower Fairfield County.

Smiles said he hopes the arrival of NewOak Credit Services will lead to other financial services businesses coming to the complex, which is about 74 percent occupied.

"We'll definitely pick up a couple more leases. It's reflective of the stock market," he said. "We're on the verge of signing a direct-marketing company out of New York City. We're extremely competitive and very aggressive in making deals."

Citing high operating costs in New York City, Chad Burhance, a partner in NewOak and head of its credit services unit, said the company looked to Connecticut and Westchester County, N.Y., to expand.

"We didn't want this (its New York City headquarters) to be our growth hub. It didn't make sense. I looked first at Stamford and Westchester," he said, but Danbury offered lower operating rates. "Connecticut was very aggressive in courting us (providing a $3 million forgivable loan). I see more hedge funds going to Danbury."

The Matrix's location offered easy access to talent pools in Westchester County, Greater Hartford and Greater New Haven, Burhance said.

`A difficult balance'

Jon Angel, president of Angel Commercial, a Fairfield commercial real estate brokerage firm, said he has represented building owners who have told him to avoid certain types of businesses, but they often change their minds after a space remains vacant for some time.

"If you're focused on cash flow, sometimes it becomes a difficult position," he said. "There are some landlords who are stubborn to a point, but money talks."

Building owners can only lower their rents so far to attract tenants, particularly in communities like Greenwich and Stamford, where office building costs are high, Angel said.

"It becomes a difficult balance. If you have an existing tenant, and you charge a lower rent to a newcomer, you have a problem," he said. "You have to have a certain rent to make you're investment profitable."

Offering rates at $15 to $16 net per square foot, Robert Scinto, chairman of R.D. Scinto, Shelton-based owner and manager of office and commercial buildings, said he has been able to fill more than 99 percent of his properties with a diverse tenant mix.

"I have a large tenant in the financial services business," he said. "You have to do the best you can to have a mix of tenants. Everybody is dependent on financial services."